NEW DELHI, Feb 14 (Reuters) - India and France are speeding
up negotiations on a $10 billion deal for 126 Rafale aircraft
following months of delays because of disagreements over the
cost of building them in India, two Indian Defence Ministry
officials told Reuters.

India started exclusive talks with French Dassault
Aviation's Rafale for a 126-plane order in January
2012, over the competing Eurofighter Typhoon
. The two sides still have to sign a final contract.

The deal is likely to be discussed during a two-day visit by
French President Francois Hollande to India beginning on
Thursday, but both sides have played down the chances of it
being finalised.

The talks have progressed slowly because of differences
about how to price technology transfer, sourcing of spares and
the selection of an Indian partner, the officials said.

"There are three issues of contention - pricing of transfer
of technology, sourcing from India and the joint venture with
Hindustan Aeronautics Ltd (HAL)," said a senior official at the
ministry, who said negotiations had been delayed by a few
months, largely because of those issues.

Another official said the contentious points had been mostly
resolved and the deal could be finalised as soon as July.

Dassault declined to comment.

The second official said Dassault had earlier asked India to
pay up to $2 billion more for the future upgrading of technology
that would be transferred over the 30-year life-cycle of the
deal.

French Foreign Minister Laurent Fabius said on Sunday that
talks with India to complete the long-awaited first export order
for Rafale were looking up. At an air show in
Bangalore last week, India pledged not to let defence cuts stand
in the way of efforts to finalise the deal.

Following India's strong objections to the cost escalation,
French has broadly agreed to review its decision but
negotiations were still going on for calculating the price for
the maintenance and life-cycle cost of the planes, the second
official said.

India has been insisting that at least 30-50 percent of the
value of the contract be sourced from Indian companies, while
Dassault wanted to lower that percentage, saying Indian firms do
not have the capacity to supply that quantity of parts, the
official said.

India revised an offset policy for procurements of arms last
year, and specifies that defence contract over 3 billion rupees
must plough back at least 30 percent of the contract value into
India as offsets.

Since 2007, Indian companies have secured sourcing contracts
worth more than $4 billion under this policy.

"The contention is also over the pricing - you can put
different value to hardware, services including transfer of
technology," said the first official, who declined to be
identified because of the sensitivity of the issue.

Hollande, accompanied by ministers and corporate delegates,
is likely to discuss the sale of nuclear plants to India and
investment in other sectors, India's Foreign Ministry said.

Under the Rafale deal, Dassault is expected to send 18
ready-made jets, then manufacture the rest in India.

India expects the deal will provide business of $4 billion
to $5 billion to Indian companies, said the second ministry
official, who has knowledge of the talks.

Both officials said another contentious issue in the
negotiations was the selection of India's state-run Hindustan
Aeronautics Ltd (HAL) as partner of Dassault to manufacture
planes in India.

Rafale has expressed doubts about the technological
capability of HAL to manufacture such a sophisticated fighter
jet, the official said. A HAL programme to manufacture advanced
jet trainers is running years behind schedule.

However, India has told French negotiators that provisions
of entering into a joint venture with the HAL to produce fighter
jets was non-negotiable and there was no question of involving
any private company in the deal, the officials said.

The visit by the French president could further help speed
up the negotiations, could help speed up the negotiations, the
second official said.

He said both countries were committed to the deal, and
India's defence minister, A.K. Antony, and the Indian air force
chief, N.A.K Browne, were making it a top priority during the
upcoming fiscal year that begins in April.

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